Brambles

For the half-year to 31 December 2011, Brambles reported sales revenue of US$2,366m from continuing operations (excluding the Recall business which is currently for sale), up 32% on a constant currency basis. Earnings before interest and tax (EBIT) rose 22% to $385.1m. The numbers were flattered by the IFCO acquisition, which didn't contribute to the prior period’s results. More telling, perhaps, was the 14% growth in basic earnings per share (EPS) from continuing operations, to US14.2 cents. Directors declared an interim dividend of A13 cents (ex date 5 Mar), 20% franked and unchanged from last year.

For pallet group Chep, the Americas division was the bright spot, with sales up 6% to US$984m and underlying EBIT up 23% to US$158m (both after adjusting for IFCO). The much smaller Asia-Pacific division also did well, with sales up 15% to US$187m and EBIT up 17% to US$36m, although recent Australian dollar appreciation also flatters that result. Europe went backwards in profit terms, but was quite resilient all things considered.

Document management company Recall saw a 9% increase in sales revenue to US$418m, leading to a 21% lift in operating EBIT to US$71m. Brambles is hoping to sell this division if the right bidder can be found. A ‘divestment process outcome’ is expected by 31 March 2012.

Management ‘tightened’ (but didn’t substantially alter) its 2012 full year underlying EBIT guidance to US$1.05bn-1.08bn. Nothing in the recent result changes our opinion that Brambles is a complex, capital intensive business that will require exquisite management in order to achieve above average returns for investors. There are easier ways to make money. The stock is up 3% since 19 Aug 11 (Sell – $6.97) and we’re shifting recommendation to AVOID.